Labor Productivity and Costs

Productivity and Costs News Release

Transmission of material in this release is embargoed until USDL-10-1518
8:30 a.m. (EDT) Thursday, November 4, 2010
Technical information: (202) 691-5606 dprweb@bls.gov www.bls.gov/lpc
Media contact: (202) 691-5902 PressOffice@bls.gov
PRODUCTIVITY AND COSTS
Third Quarter 2010, Preliminary
Nonfarm business sector labor productivity increased at a 1.9 percent
annual rate during the third quarter of 2010, the U.S. Bureau of Labor
Statistics reported today. Labor productivity, or output per hour, is
calculated by dividing an index of real output by an index of hours worked
by all persons, including employees, proprietors, and unpaid family
workers. Output increased 3.0 percent and hours worked increased 1.1
percent in the third quarter. (All quarterly percent changes in this
release are seasonally adjusted annual rates.) Productivity increased 2.5
percent over the last four quarters, as output rose 4.1 percent and hours
worked rose 1.6 percent (tables A and 2).
Unit labor costs in nonfarm businesses decreased 0.1 percent in the third
quarter of 2010, because productivity grew 1.9 percent while hourly
compensation increased 1.8 percent. From the third quarter of 2009 to the
third quarter of 2010, unit labor costs declined 1.9 percent (tables A and
2). BLS defines unit labor costs as the ratio of hourly compensation to
labor productivity; increases in hourly compensation tend to increase unit
labor costs and increases in output per hour tend to reduce them.
Manufacturing sector productivity rose 0.4 percent in the third quarter of
2010, as output grew 4.0 percent and hours worked increased 3.6 percent.
Over the last four quarters, manufacturing productivity increased 3.9
percent as output rose 7.0 percent and hours increased 3.0 percent (tables
A and 3). Productivity for the sector increased at a 6.3 percent annual
rate during the five quarters of the current business cycle expansion,
which began in the third quarter of 2009. This contrasts with the 1.3
percent productivity decline during the recent recession, as measured from
the fourth quarter of 2007 through the second quarter of 2009.
In the third quarter of 2010, productivity declined 0.8 percent in the
durable goods manufacturing sector as output grew more slowly than hours
worked; productivity in nondurable goods industries increased 2.9 percent
as output rose 2.2 percent while hours fell 0.7 percent (tables A, 4, and
5).
Manufacturing unit labor costs fell 0.3 percent in the third quarter of
2010 and 4.6 percent from the same quarter a year ago (tables A and 3).
The four-quarter decline in unit labor costs reflects a 3.9 percent
increase in productivity and a 0.9 percent decline in hourly compensation.
The data sources and methods used in the preparation of the manufacturing
output series differ from those used in preparing the business and nonfarm
business output series, and these measures are not directly comparable.
See Technical Notes for further information on data sources.
Revised measures
Nonfarm business productivity for the second quarter of 2010 fell at the
same 1.8 percent rate that was reported on September 2. Unit labor costs
were revised up due to an upward revision in hourly compensation. In the
manufacturing sector, productivity increased at an annual rate of 5.4
percent in the second quarter, rather than 4.1 percent as reported
September 2. Manufacturing unit labor costs declined 6.4 percent in the
second quarter.
In the nonfinancial corporate sector, revised data for the second quarter
of 2010 show that productivity fell 1.6 percent, more than the 0.5 percent
decline reported previously. After revision, unit labor costs increased
0.9 percent in the second quarter, following two quarters of large
declines. Unit profits increased at a 21.7 percent annual rate in the
second quarter of 2010.
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The Bureau of Labor Statistics is conducting a customer survey to solicit
suggestions from the public to enhance the quality and relevance of BLS
productivity data and publications. The survey is available at
www.bls.gov/lpc until December 15, 2010.
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The revised Productivity and Costs press release for third quarter 2010 is
scheduled to be released on Wednesday, December 1, 2010 at 8:30 a.m.(EST).
======================================================================================================
Table A. Preliminary third-quarter 2010 measures: percent change from previous quarter, annual
rate (Q to Q) and from same quarter a year ago (Y to Y)
Sector Nonfarm Durable Nondurable
Business Business Manufacturing Manufacturing Manufacturing
Q to Q Y to Y Q to Q Y to Y Q to Q Y to Y Q to Q Y to Y Q to Q Y to Y
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Productivity 1.9 2.5 2.2 2.5 0.4 3.9 -0.8 5.4 2.9 2.6
Output 3.0 4.1 3.0 4.1 4.0 7.0 5.6 9.4 2.2 4.2
Hours 1.1 1.6 0.8 1.5 3.6 3.0 6.4 3.9 -0.7 1.6
Hourly
compensation 1.8 0.5 2.1 0.4 0.1 -0.9 -1.0 -1.3 1.6 -0.4
Real hourly
compensation 0.4 -0.8 0.7 -0.8 -1.4 -2.1 -2.5 -2.5 0.1 -1.6
Unit labor
costs -0.1 -1.9 -0.1 -2.0 -0.3 -4.6 -0.2 -6.3 -1.3 -2.9
======================================================================================================
Table B. Revised and previous measures for: second quarter 2010
Sector Nonfarm Durable Nondurable
Business Business Manufacturing Manufacturing Manufacturing
Revised Previous Revised Previous Revised Previous Revised Previous Revised Previous
------------------------------------------------------------------------------------------------------
Percent change, annual rate
Productivity -1.8 -1.8 -1.8 -1.9 5.4 4.1 11.6 9.9 -1.6 -2.4
Output 1.6 1.6 1.8 1.7 9.6 8.4 15.1 13.6 3.7 2.8
Hours 3.5 3.5 3.7 3.7 4.0 4.1 3.1 3.4 5.3 5.3
Hourly
compensation -0.6 -0.7 -0.7 -0.8 -1.3 -2.0 -1.3 -1.9 -1.3 -2.1
Real hourly
compensation 0.1 0.0 0.0 -0.1 -0.6 -1.3 -0.5 -1.2 -0.6 -1.4
Unit labor
costs 1.3 1.1 1.1 1.1 -6.4 -5.9 -11.5 -10.7 0.3 0.3
======================================================================================================
Table C. Nonfinancial corporations: revised and previous second-quarter 2010 productivity and
cost measures
Real
Hourly hourly Unit Implicit
Produc- compen- compen- labor Unit price
tivity Output Hours sation sation costs profits deflator
------------------------------------------------------------------------------------------------------
Percent change, annual rate
Revised -1.6 2.7 4.3 -0.7 0.0 0.9 21.7 2.6
Previous -0.5 4.0 4.5 -1.0 -0.3 -0.5 31.2 2.7
======================================================================================================

TECHNICAL NOTES
Labor Hours: Hours data for the labor productivity and cost measures
include hours for all persons working in the sector--wage and salary
workers, the self-employed and unpaid family workers. The primary source
of hours and employment data is the BLS Current Employment Statistics
(CES) program, which provides monthly survey data on the number of jobs
held by wage and salary workers in nonfarm establishments. The CES also
provides average weekly paid hours of production and nonsupervisory
workers in these establishments. Weekly paid hours are adjusted to hours
at work using data from the National Compensation Survey (NCS). The BLS
Hours at Work survey, conducted for this purpose, was used for earlier
years. The Office of Productivity and Technology estimates average weekly
hours at work for nonproduction and supervisory workers using information
from the Current Population Survey (CPS), the CES, and the NCS.
Data from the CPS are used for farm labor, nonfarm proprietors, and
nonfarm unpaid family workers. Estimates of labor input for government
enterprises are derived from the CPS, the CES, and the National Income and
Product Accounts (NIPA) prepared by the Bureau of Economic Analysis (BEA)
of the Department of Commerce.
The CES measures jobs, counting a person who is employed by two or
more establishments at each place of employment. In contrast, the CPS
features measures of employment that count each person only once and
classify each person according to his or her primary job; hours worked at
all jobs by that person accrue to his or her primary job. However, the
CPS also collects more detailed information on employment and hours worked
at primary jobs and all other jobs, separately. The BLS productivity
measures use the more detailed information on employment and hours to
assign all hours worked to the correct industrial sector and avoid
duplicating hours data from the CES.
Output: Business sector output is a chain-type, current-weighted index
constructed after excluding from gross domestic product (GDP) the
following outputs: general government, nonprofit institutions, and private
households (including owner-occupied housing). Corresponding exclusions
also are made in labor inputs. Business output accounted for about 75
percent of the value of GDP in 2009. Nonfarm business, which excludes
farming, accounted for about 74 percent of GDP in 2009.
Annual indexes for manufacturing and its durable and nondurable goods
components are constructed by deflating current-dollar industry value of
production data from the U.S. Bureau of the Census with deflators from the
BLS. These deflators are based on data from the BLS producer price
program and other sources. The industry shipments are aggregated using
annual weights, and intrasector transactions are removed. Quarterly
manufacturing output measures are based on the index of industrial
production prepared monthly by the Board of Governors of the Federal
Reserve System, adjusted to be consistent with annual indexes of
manufacturing sector output prepared by BLS. Durables include the
following 3-digit NAICS industries: wood product manufacturing;
nonmetallic mineral product manufacturing; primary metal manufacturing;
fabricated metal product manufacturing; machinery manufacturing; computer
and electronic product manufacturing; electrical equipment and appliance
manufacturing; transportation equipment manufacturing; furniture and
related product manufacturing; and miscellaneous manufacturing.
Nondurables include: food manufacturing; beverage and tobacco product
manufacturing; textile mills; textile product mills; apparel
manufacturing; leather and allied product manufacturing; paper
manufacturing; printing and related support activities; petroleum and coal
products manufacturing; chemical manufacturing; and plastics and rubber
products manufacturing.
Nonfinancial corporate output is a chain-type, current-weighted index
calculated on the basis of the costs incurred and the incomes earned from
production. The output measure excludes the following outputs from GDP:
general government; nonprofit institutions; private households;
unincorporated business; and those corporations classified as offices of
bank holding companies, offices of other holding companies, or offices in
the finance and insurance sector. Nonfinancial corporations accounted for
about 47 percent of the value of GDP in 2009.
Productivity: These productivity measures describe the relationship
between real output and the labor time involved in its production. They
show the changes from period to period in the amount of goods and services
produced per hour. Although these measures relate output to hours at work
of all persons engaged in a sector, they do not measure the specific
contribution of labor, capital, or any other factor of production. Rather,
they reflect the joint effects of many influences, including changes in
technology; capital investment; level of output; utilization of capacity,
energy, and materials; the organization of production; managerial skill;
and the characteristics and effort of the work force.
Labor Compensation: The measure includes accrued wages and salaries,
supplements, employer contributions to employee benefit plans, and taxes.
Estimates of labor compensation by major sector, required for measures of
hourly compensation and unit labor costs, are based primarily on employee
compensation data from the NIPA, prepared by the BEA. The compensation of
employees in general government, nonprofit institutions and private
households are subtracted from compensation of domestic employees to
derive employee compensation for the business sector. The labor
compensation of proprietors cannot be explicitly identified and must be
estimated. This is done by assuming that proprietors have the same hourly
compensation as employees in the same sector. The quarterly labor
productivity and cost measures do not contain estimates of compensation
for unpaid family workers.
Unit Labor Costs: The measures of unit labor costs in this release
describe the relationship between compensation per hour and productivity,
or real output per hour, and can be used as an indicator of inflationary
pressure on producers. Increases in hourly compensation increase unit
labor costs; labor productivity increases offset compensation increases
and lower unit labor costs.
Presentation of the data: The quarterly data in this release are
presented in three ways: as percent changes from the previous quarter
presented at a compound annual rate, as percent changes from the
corresponding quarter of the previous year, and as index number series
where 2005=100. Annual data are presented both as index number series and
percent changes from the previous year.
The index numbers and rates of change reported in the productivity
and costs news release are rounded to one decimal place. All percent
changes in this release and on the BLS web site are calculated using index
numbers to three decimal places. These index numbers are available at the
BLS web site, www.bls.gov/data/home.htm, or by contacting the BLS Division
of Major Sector Productivity. (Telephone 202-691-5606 or email
DPRWEB@BLS.GOV)
Information in this release will be made available to sensory-impaired
individuals upon request. Voice phone: 202-691-5606; Federal Relay
Service number: 1-800-877-8339.

SOURCES: Output data are from the Bureau of Economic Analysis and the
Census Bureau of the U.S. Department of Commerce; the Bureau of Labor
Statistics, U.S. Department of Labor; and the Federal Reserve Board.
Compensation and hours data are from the Bureau of Labor Statistics and
the Bureau of Economic Analysis.
RELIABILITY: Productivity and cost measures are regularly revised as
more complete information becomes available. The measures are first
published within 40 days of the close of the reference period; revisions
appear 30 days later, and second revisions after an additional 60 days.
In the business sector, the third publication (second revision) of a
quarterly index of output per hour of all persons has differed from the
initial value by between -1.7 and +1.5 index points approximately 95
percent of the time. This interval is based on the performance of this
measure between the fourth quarter of 1995 and the second quarter of
2010.
Footnotes, Tables 1-6
(1) Wages and salaries of employees plus employers' contributions for
social insurance and private benefit plans. Except for nonfinancial
corporations, where there are no self-employed, data also include an
estimate of wages, salaries, and supplemental payments for the self-
employed.
(2) The change for recent quarters is based on the Consumer Price Index
for all urban consumers (CPI-U). The trend from 1978-2009 is based on the
Consumer Price Index research series (CPI-U-RS).
(3) Unit nonlabor payments include profits, consumption of fixed
capital, taxes on production and imports less subsidies, net interest and
miscellaneous payments, business current transfer payments, rental income
of persons, and the current surplus of government enterprises.
(4) Current dollar output divided by the output index.
(5) Quarterly changes: Percent change compounded at annual rate is
calculated using index numbers to three decimal places. Indexes
published in the news release are rounded to one decimal place for
convenience. Annual changes: Percent change is calculated using annual
average indexes to three decimal places.
(6) Unit nonlabor costs include consumption of fixed capital, taxes on
production and imports less subsidies, net interest and miscellaneous
payments, and business current transfer payments.
(7) Total unit costs are the sum of unit labor and nonlabor costs.
(8) Unit profits include corporate profits before tax with inventory
valuation and capital consumption adjustments.